A keepwell agreement is a financial agreement between a parent company and its subsidiary, with the aim of ensuring continued financial support to the subsidiary in case it experiences financial difficulties. This agreement is designed to help the subsidiary maintain its creditworthiness and access funding when needed. A keepwell agreement is also known as a comfort letter or letter of support.

The keepwell agreement is common among large, multinational corporations, especially those with subsidiaries in countries or regions where the legal and regulatory frameworks may not be as robust as in the parent company`s home jurisdiction. The agreement provides a measure of assurance to banks and other creditors that the subsidiary will be supported financially in case of any contingencies that may arise.

The keepwell agreement is a legally enforceable document that requires the parent company to provide financial support to the subsidiary in case it has difficulty meeting its obligations. The agreement typically covers a range of financial support, including loans, guarantees or equity investments. In return, the subsidiary agrees to pay a fee to the parent company for providing the support.

Keepwell agreements are especially important in regions where political instability or economic uncertainty may affect the subsidiary`s operations. In such cases, the parent company`s financial support can be crucial in ensuring the subsidiary`s continued operations.

Investopedia is an online resource that provides information on investment, finance, and economics. It offers valuable insights on various financial products and services, including keepwell agreements. The platform is a reliable source of information for investors and financial professionals who need to understand the workings of different financial agreements and instruments.

In conclusion, a keepwell agreement is an important financial instrument that helps ensure the continued operations of subsidiaries of large multinational corporations. It provides a measure of financial assurance to creditors and helps maintain the creditworthiness of the subsidiary. Investopedia is a valuable resource for anyone seeking to understand the workings of keepwell agreements and other financial instruments.